Question

(Only Part 2) Part 1 3. There are two individuals looking to rent apartments in a neighborhood-consumer His willing to pay $5,000 as monthly rent and consumer L is only willing to pay $3,000 monthly rent. The valuation of the rental for each consumer is given below: Consumer Value of Apartment to Consumer $3,000 $5,000 The marginal cost of providing an apartment for rent is $1,000 for each apartment, MC = $1000 Suppose, there is a perfectly competitive rental market in this neighborhood. a) What will the monthly rent be? b) Who will rent at this price? c) What is the consumer surplus? Producer Surplus? Total Surplus? Part 2 What if instead there is a single landlord who owns all apartment buildings in this neighborhood; so, it is a monopoly market. a) Fill in the appropriate values for demand, revenue and profits for each price in the table below: Price Total Revenue Profit Number of apartments rented, $2.000 55.000 b) What is the monopoly quantity? c) What is the monopoly price? d) Calculate the consumer surplus, producer surplus and total surplus. e) Compare the efficiency of the markets across the two forms of competition and explain in the context of this example, why perfect competition provides allocative efficiency, while monopoly does not

Answer 1

Pn coss f ferpet nha Bud rnt-lo0 mowuty Both Conaun ures ent Censumer Suyplus Produ cers unplns to fal Supplend 2000 140000600o C) =6000 TR Cuci Prots 4000 Lo00 2000 4000 Ooas monopoly uohly= e)nmoopely pris 67 17 Produce surples- 4000 Pefet Corpihin acdeni alocn ble pfr coina aput t0manapelytcons mor conp